Bull Market
A bull market is a sustained rise in stock prices, conventionally declared once a broad index has climbed 20 percent from a significant low. The threshold is custom rather than law: crossing it changes the label on the market, not the value of any business inside it.
The math
Run the round trip. An index peaks at 4,000, falls 25 percent to a low of 3,000, then rallies 20 percent to 3,600, at which point headlines announce a new bull market.
An investor who put $100,000 in at the peak rode down to $75,000 and now holds $90,000: still 10 percent underwater on the day the celebration starts. Getting back to even requires a further 11.1 percent from 3,600, and measured from the low, the full trip home takes a 33 percent gain, not 20.
| Index | $100,000 invested | |
|---|---|---|
| Peak | 4,000 | $100,000 |
| Low, -25% | 3,000 | $75,000 |
| Bull declared, +20% | 3,600 | $90,000 |
The bull label arrives well before the wounds close.
The trap
Treating the declaration as an entry signal. By construction the announcement comes after a 20 percent gain has already happened, so buying on the label means paying a fifth more than the prices available during the panic, when the same shares were unwanted.
The companion error is assuming a declared bull means recovery is complete; as the arithmetic above shows, it frequently is not.
The move
A stock picker ignores the christening entirely. The productive work happened earlier, buying durable businesses at depressed prices while the headlines were grim, and the discipline required later is different: in an aging bull, multiples stretch, bargains thin out, and the temptation to lower one’s standards grows.
Keep the buy criteria fixed, hold cash without apology when nothing qualifies, and let the market label itself however it likes.